Thursday, 26 January 2012

President Klaus: The present EU is a straightjacket blocking economic activity

Czech President Václav Klaus is always worth listening to. In a key-note speech given at the 13th GCC Industrialists’ Conference in Riyadh, Klaus describes what went wrong with the European project, "which started with a rational and undoubtedly positive idea of its founders to liberalize Europe, to open it up, to eliminate barriers existing at the borders of European countries, to form a free trade zone and a customs union, to create a common market and a large interconnected economic space":

The overal liberalization and the removal of barriers were replaced by a different project – by centralization, regulation, and standardization, by harmonization of most of economic activities and economic parameters, by radical shift of competencies from individual member countries to the EU headquarters in Brussels, by the change of the whole concept of integration from intergovernmentalism to supranationalism, by de-nationalization of European member states and by a shift towards European governance. A fundamentally heterogeneous European continent, which flourished in the past because of its diversity and non-uniformity, has been gradually artificially unified and homogenized by a centrally organized governance and legislation. It brought about negative economic effects and led to what is called a democratic deficit (or lack of democratic accountability). I call it postdemocracy.This very problematic tendency has been accelerating in time with crucial turning points connected with both the Maastricht and Lisbon treaties. At a lower level of integration, the consequences of centralization had not been that dramatic. In the era of a deeper integration, the existing European heterogeneity became more and more in contradiction with the institutional uniformity, which turned into a form of straightjacket and keeps blocking the economic activity.The most important moment in this process was the establishment of the European Monetary Union and the introduction of common currency in a group of originally 12, now 17 countries that do not form an optimal currency area. The current Eurozone sovereign debt crisis is an inevitable consequence of one currency, one exchange rate, one interest rate for countries with very different economic parameters. The political decision about this arrangement was taken without sufficient attention being paid to the existing economic fundamentals. I have to say that some of us have been criticizing this project for years, as early as in the early 1990s.

The problem is that the failed European system that Klaus describes so well is almost impossible to change, at least to the better. It is therefore likely that the required reforms will take place only after a deep economic and social crisis.